Orange is the new black. Different is the new normal. Is 20 VIX the new 15 VIX? That’s the question put forward by Bloomberg in their recent piece titled: “Battered and Bruised, Wall Street Makes Peace With Volatility”, where they have some juicy lines like: Markets are “beginning to accept a shift in the volatility […]

Below is our quarterly newsletter. If you would like to be added to our distribution list, please contact us. Clients, Friends, Associates: As we prepare for a new year, we also reflect on an eventful 2018 that included developments impacting both traditional hedge fund managers as well as those in the digital asset space. Regardless […]

Order from Chaos: Data Science is Revolutionizing Investment Practice Joseph Simonian, Marcos Lopez de Prado, and Frank FabozziJournal of Portfolio Management, Fall 2018A version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic Research Insight category. What are the Research Questions? This editorial introduces data science to the wider [...]

There is a difference between risk factors and risk premia. This may be viewed as a subtle distinction, but it is important to think about the differences. Factors explain the return attributes of an asset. Those attributes may be either style or macroeconomic factors. Factors provide a description of what drives returns. A risk premium is what an investor receives for taking-on the risk associated with a factor. A risk premium is compensation for non-diversified risk which can come in the form of a style or a macro factor. A factor is a measurement of a characteristic. A premium is compensation for holding a characteristic. Investors want to be paid a premium for a persistent repeatable factor.

By David Drake The cryptocurrency market by its nature is unpredictable and has recently experienced a major downfall. By close of 2017, the value of Bitcoin and Ethereum rose to the highest point with Bitcoin reaching a high of almost $20,000. This high value of Bitcoin caused some countries to introduce cryptocurrency regulations to curb speculation in the […]

"A lot of people will say that you can't predict the markets and you can't, but the markets are impacted by fear and greed and you can model that. The question is how the market will react. Will it be an under reaction or an overreaction?" said Scott Andrews, Principal at Numeri Capital Management Inc.

Numeri, a commodity trading advisor that leverages intraday strategies to pursue alpha in a manner uncorrelated with the equity markets is one of the most recent Program Managers to join Hehmeyer Capital Management, LLC.&nb...

A Backtesting Protocol in the Era of Machine Learning Rob Arnott, Campbell Harvey, and Harry MarkowitzWorking paperA version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic Research Insight category. What are the Research Questions? Data mining in finance has long been a concern for academic researchers. Campbell [...]

You can watch the video via the link below: https://www.youtube.com/embed/QaFK9GuUB5o This week Ryan and I discuss two posts. First, we examine a guest post by Matthew Bartolini of State Street Global Advisors, discussing the underperformance of Value and its outlook for 2019. Second, we examine a guest post by Elisabetta on a recent JPM [...]

(Hedgeweek) Hedge funds continued to decline in December, largely driven by L/S Equity (and to some extent CTAs), according to the latest Weekly Brief from Lyxor’s Cross Asset Research team. To read this article:

Let's just make things clear. There have not been many yield curve inversions, so analysts who want to study the behavior of asset prices during inversions have limited data. Yield curves may signal recessions which may also signal a decline in equities associated with slower growth, but the timing links are highly variable. The risk differs depending on how the question is asked.

A former Canadian hedge fund manager whose high-profile downfall culminated in a four-year jail sentence is again at the centre of a controversy after turning up under a new identity at a New York-bas...

(Opalesque) After several rough years, CTAs are looking new ways of trading beyond trend following, according to delegates at the recent Opalesque Chicago Roundtable. “We see a lot of volatility based programs now,” said Jeff Malec, Managing Director at RCM […]

Have you heard the one about the quant, Ag trader, crypto champion, portfolio manager, and day trader walking into the CME? Neither had we. So we sent RCM’s Jeff Malec over to participate in the Opalesque 2018 Chicago Roundtable to cover topics ranging from payment for order flow, pseudo-liquidity, the risk in equity portfolios, whether […]

Are you a technocrats or a politician? If you listen to central banks, they will say they are just technocrats or experts who do not engage in politics. To discuss political implications of policy or have politicians involved in the discussion is an infringement on a central banker's cherished independence. Only through independence and limited oversight can central banks do their sacred technical work.

Catch up on what we’re checking out this week. Despite announcing that Ivy League universities beat returns of the typical 60-40 portfolio over the last decade. Taking a closer look, even the top performing universities still reported lower returns. Ivy League Endowments Lag 60-40 Portfolio (Chief Investment Officer) But we don’t need hedge funds […]

“I don’t come from a traditional finance background,” said Portfolio Manager and Partner at Commodity Asset Management, Nathaniel Polachek. “My hobbies include applying statistical formulas to NASCAR races and watching the top 100 films of all time.”

As a new entrant to Hehmeyer Capital Management’s portfolio of program managers, we were curious to learn more about Polachek’s back...

(Valuewalk) As technology has advanced, numerous industries have been significantly impacted, and the financial services business is no different. Funds were once looking into the future when thinking about addressing issues such as disruptive technology, changing investor expectations and adapting […]

You have to hand it to the WSJ – they really know how to make the safety of Trillions of Dollars in derivatives trading across dozens of exchanges look pretty pedestrian. Their hero image of the firm, which cleared 4.3 Billion contracts last year and holds about $130 Billion in margin deposits for clients, is […]

Borne in academia and raised by fund managers seeking to outperform, value style mutual funds and ETFs today hold close to $2 trillion[ref]Morningstar[/ref]. But with poor returns over the past decade, the question of whether "value is dead" has become a popular topic of conversation.[ref]See here for a discussion on this blog.[/ref] The search term [...]

This was a negative month for managed futures funds as measured by peer indices for a simple reason, range bound behavior in equities and a reversal in bonds. Equity indices have started to trend higher, but longer-term trend followers were not able to effectively exploit these moves in the second half of the month. Global bonds have trended higher for most of the month but smaller position sizes based on higher volatility limited gains. Oil prices offered strong gains, but the size of positions may not have large enough to make an overall impact on fund returns. Commodity trades are generally a small portion of the total risk exposure for large funds.

From Yahoo: Brexit supporter Crispin Odey continues to profit from Brexit as he bets against the UK economy. The Hedge fund manager supported Brexit with various financial contributions and political interventions. He donated to pound;873,323 ($1,111,465) to UKIP and other campaigns in favour of le... Article link

How did it get to be December 10th already? We feel like we were just having turkey and pumpkin pie last week, but looks like we’re already a week into the last month of the year. Which brings us to a delayed release of last month’s asset class scoreboard, where it was a reversal of […]

The cost of being wrong with political uncertainty is significant and the impact will be felt across many markets. The yellow jacket "uprising" has already shifted French economic policy and will also affect the direction of government. We may not be extremists but the fundamental pact between the governed and government is broken which is not good for any investments.

The Impact of Flows into Exchange Traded Funds: Volumes and Correlations Ananth Madhavan and Daniel Morillo Journal of Portfolio Management, summer 2018 A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category What are the Research Questions? The paper investigates the following research [...]

(Hedgeweek) Hedge funds fared better in November compared to October but still ended the month in negative territory, according to the latest Weekly Brief from Lyxor’s Cross Asset Research team. To read this article:

The saying typically goes “A little bit of sweetness can drown out a whole lot of bitterness.” But here at RCM, the saying “A lot of holiday sweetness is causing us all to enter a chocolate coma that we can’t escape” may more accurately describe our situation. Holidays tend to be centered around all things […]

You can watch the video via the link below: ﻿ This week Ryan and I discuss three posts. First, we examine a guest post titled, "Trend Following on Steroids," which examines ways to enhance a simple trend-following strategy. Second, we examine a post I wrote regarding how to use trend-following within a standard stock/bond portfolio. [...]

Trend following is well-known and the simplest version is as follows: you buy an asset when it has positive momentum (the price goes up) and you sell it and go to cash (or any other safe haven) when the momentum turns negative.[ref]AA has an archive of research on the subject here.[/ref] The best-known example of [...]

A question we have been receiving recently is the following: How should I use trend following within a portfolio? Generally, the questions are related to our Global Value, Momentum, and Trend Index, which allocates to the (1) Value, (2) Momentum, and (3) Trend factors. A big difference between the Global Value Momentum Trend (GVMT) portfolio [...]

Last month nothing worked with all asset classes generating negative returns. October saw a shift in market sentiment toward risk-off behavior. Investors started to take loses and adjust to more defensive portfolios. Momentum was clearly negative early in November, but monthly returns are sending different signals with both US and global equities higher. Nevertheless, it is too early to make any statement that risk-taking is back on. Equity markets have come off lows but are not showing any trends. Credit ETFs declined sharply relative to Treasuries and long duration bonds gained on new fears of economic slowdown. Commodities declined on a sharp fall in energy prices.

The CFTC has issued an amended order that will allow an additional four multilateral trading facilities (MTFs) authorised within the European Union (EU) to be exempted from the requirement to register with the CFTC as swap execution facilities (SEFs).

Laxman Pai, Opalesque Asia: CTAs, overall, fully neutralized their short bond positions over the month of November, said Lyxor in its Weekly Brief. This was a fast reshuffling, though executed with diverging regional positioning.
The report from Lyxor's Cross Asset Research team, focused on hedge ... Article link

Measuring Factor Exposures: Uses and Abuses Ronen Israel and Adrienne Ross The Journal of Alternative Investments A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category What are the research questions? USES: Can investors really separate “alpha” from “beta”? What are [...]

The chart shows how frequently the fund's 3M return is positive or negative. Each bar is an observation period (the fund's return over the past 3M, at month's end). The performance data shown in table...

The price of one share of stock, which is set by buyers and sellers in the market. Share price can be used to find a company's total market value, as represented by market capitalization. Prices of a ...

If you have an asset that has an illiquidity premium, an optimizer will love it as a choice. An illiquidity premium is a dangerous area for investing. First, are you getting paid enough for illiquid? Second, is there a good way to measure illiquidity? Third, do you really know your liquidity needs?

By David Drake India has been among countries that have contributed to technological advancements, either as a developer or as a market. The Information Technology (IT) sector contributed 7.7% of its gross domestic product in the 2017 fiscal year, and there has been hope that the industry will continue to grow by being at the forefront of technological […]

“From a Central Counterparty Clearing (CCP) perspective, it is our role to provide stability and certainty behind the trading of a new asset class,” said Options Clearing Corporation (OCC) Chief Risk Officer John Fennell about clearing Cboe’s bitcoin contract. “It is important for OCC to support new asset classes like crypto and ensure we can provide confidence, both financially and operationally, in a manner comparable to...

Do-It-Yourself tactical asset allocation weights for the Robust Asset Allocation Index are posted here.[ref] Create a free account here if you want to access the site directly. The link is here. [/ref] Exposure Highlights (red implies a month over month change):[ref]The information contained herein is only as current as of the date indicated and may be superseded by [...]

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in October, blaming macroeconomic conditions and unpredictable events that hit several sectors, with ...